The norm regarding the absence of criminal proceedings against companies applying for Defence City resident status may become a barrier for a significant part of the defense industry and aircraft manufacturing enterprises, as such cases often remain formally open for years without suspicion. This was stated in an exclusive comment to UNN by Dmytro Maistro, head of the Zaporizhzhia branch of the All-Ukrainian Public Organization "Association of Lawyers of Ukraine", Lawyer, partner of "Maistro and Bezhenar" Law Firm, emphasizing that the legislation on the special regime needs clarification also regarding audit, requirements for company turnover, and tax conditions for Ukrainian manufacturers of goods for the defense industry.
The lawyer notes that it seems that the legislation regarding Defence City was written for some specific large companies.
Certain changes (to the legislation regarding Defence City - ed.) need to be made, I believe. They should be... It seems that this was written for someone, for a certain segment, for a certain pool of large and strong (companies - ed.), and all others - somehow unclear
As UNN previously wrote, representatives of the defense industry market note that the current legislation regarding Defence City has some contradictions and does not take into account current realities, which significantly complicates enterprises' accession to the special regime.
In particular, it refers to the requirement for an audit, but it is not specified for what period and by whom it should be conducted. Dmytro Maistro is convinced that this norm needs clarification to avoid corruption risks. In his opinion, the legislation should specify which audit company should conduct the audit, indicate the requirements for its certification, and also clearly define the audit period.
Representatives of the defense industry and aircraft manufacturing market are convinced that the norm providing for the absence of criminal proceedings in which a potential resident would be involved also needs clarification. This point, according to market players, does not correspond to modern realities, when criminal proceedings are used as a tool of pressure on business and are not always justified.
Unfortunately, the practice of opening criminal cases often has a formal nature: proceedings are registered based on competitors' applications or within inspections, after which they can "hang" for years without active investigative actions. Often, some dishonest law enforcement officers can use criminal proceedings as an element of pressure on business.
In turn, Dmytro Maistro is convinced that clarifying the norm regarding criminal proceedings is perhaps the most critical. He emphasizes that currently there is a norm regarding the absence of criminal proceedings against companies that plan to join the special regime. However, this point does not take into account the presumption of innocence, as well as the fact that law enforcement agencies often use criminal proceedings to pressure businesses.
We understand that there are currently many criminal proceedings being investigated against businesses. Cases are initiated, they are registered for years, no one is charged with suspicion. Unfortunately, there are many such cases. They are not transferred to court, but, in fact, when some information (about the company - ed.) is received, the case hangs and it is clear that it was initiated against officials or the enterprise is involved in this criminal case somewhere. And, of course, this also hinders (enterprises joining Defence City - ed.)
He is convinced that the legislation should clearly state that, for example, an enterprise cannot be a resident if its officials have a final conviction that has entered into force, or at least if officials have been served with a notice of suspicion.
Another point that could significantly support the domestic defense industry is the abolition of VAT on Ukrainian-made components, as is done for imported parts.
According to the lawyer, unequal conditions for business currently exist in Ukraine, particularly regarding VAT payment. After all, this tax has been abolished for imported parts for defense industry enterprises, but not for Ukrainian-made parts.
If we take VAT, then, of course, we understand that this is some kind of issue regarding market non-competitiveness. That is, some have this benefit, others do not. And this puts (business - ed.) in unequal conditions. That is, it needs to be specified, and perhaps Ukrainian manufacturers could also have these VAT benefits. At least partially, if it is impossible to cancel everything, let it be some smaller percentage.
The lawyer also supported the market's demand for clarification of the legislation regarding the turnover required for residency in Defence City so that representatives of small and medium-sized businesses involved in the defense industry and aircraft manufacturing could also receive benefits and preferences.
You know, everyone works in the same field, but the opportunities are different. Therefore, this also needs clarification. These are such significant issues. And criminal proceedings also need to be clearly delineated somehow. That is, clarification is needed. And regarding the audit, it should be written so that people understand, okay, an audit company, the presence of a certificate - for a year, three years... If it's VAT, then Ukrainian manufacturers... Let it not be completely canceled, say, but partially reduced. For example, the VAT percentage will be lower.
Recall
The special regime Defence City has started operating in Ukraine. This is an element of systemic state policy in the field of security and defense. This legal regime is designed to create favorable conditions for scaling up defense production, attracting investment, and developing the Ukrainian defense industry.
Defence City residents receive a set of economic and operational incentives that should reduce the fiscal burden and accelerate production development. This includes exemption from corporate income tax, provided that defense industry enterprises reinvest funds in their development, as well as exemption from land, property, and environmental taxes.
In addition, simplified customs procedures will apply to residents; special guarantees for the protection of information and confidentiality of enterprise data during the regime; state support for relocation and increased protection of production facilities if necessary.
An enterprise can obtain Defence City resident status if the legal entity meets the requirements for the share of qualified income (income from the sale of self-produced defense goods or the performance of work and/or provision of services related to defense goods) for the previous calendar year, and there are no circumstances for disqualification of such a person.
The share of qualified income must be at least 75% of the legal entity's total income (with exceptions) and at least 50% of the total income for aircraft manufacturing entities.
A company registered in accordance with the legislation of a foreign state or that has violated the requirements for disclosing information about the ownership structure or ultimate beneficiaries cannot be a resident.
An enterprise cannot be included in the register if its shareholders/participants include persons associated with the aggressor state, or against whom sanctions have been applied, or who are associated with a person against whom sanctions have been applied.
Legal entities against whom a violation of obligations under a state contract for defense procurement was established within the last 12 months cannot join Defence City; those who are not corporate income taxpayers or are included in the register of non-profit institutions and organizations.
An enterprise cannot become a resident if it has a tax debt of more than 10 minimum wages; if it is located and operates in the temporarily occupied territory of Ukraine, and is also involved in criminal proceedings.
The Ministry of Defense announced that the first company received resident status.